How to roll over your 401(k) directly to an IRA

What are the 401(k) rollover rules?

It’s important to understand the basic rules before you decide whether and how to roll over your 401(k).

Direct rollover

• A direct rollover is usually the simplest way to move your 401(k) into an IRA.
• You ask your plan administrator to transfer the money directly from your 401(k) to your new or existing IRA.
• The plan may send the money by wire or issue a check payable to your IRA. The check may be sent directly to the IRA provider or mailed to you for delivery to the IRA provider.
• Because the money isn't paid to you directly, taxes are generally not withheld from the amount rolled over.

Indirect (60-day) rollover

• If the money is paid to you personally, you may still be able to roll it over through an indirect rollover.
• From the day you receive the funds, you have 60 days to deposit the full distribution into an IRA or another eligible retirement plan. Because plans are generally required to withhold 20% of an eligible rollover distribution paid to you, you would need to replace the withheld amount with other funds to complete a rollover of the entire distribution.
• If you don't roll over the full distribution within the 60-day period, the portion not rolled over is generally treated as taxable income. If you miss the 60-day deadline entirely, the distribution may be treated as taxable income, and if you’re under age 59½, you may also be subject to a 10% early withdrawal penalty unless an exception applies.
• In some situations, the IRS may waive the 60-day requirement, but you shouldn’t count on that.

If you already have an IRA, you may be able to consolidate savings from your 401(k) and former employer retirement plans into it. Or, instead of an IRA, you might roll your 401(k) into your new employer’s retirement plan—if that plan accepts rollovers.

What are the options for your 401(k) when you leave a job?

When you leave a job, you generally have four choices for your 401(k):

• Move it to an IRA
• Move it to your new employer’s retirement plan (if it accepts rollovers)
• Leave it in your old employer’s retirement plan (if allowed)
• Cash it out

Each option can affect your fees, investment choices, withdrawal flexibility, and taxes.

A direct rollover to an IRA or a new employer’s retirement plan is often the simplest option and helps you avoid immediate taxes and penalties. A 60-day (indirect) rollover can be more complicated because taxes may be withheld up front from the distribution, and you must replace the full amount within 60 days to avoid taxes on the amount withheld and potential penalties.

These decisions can have a big impact on your long-term savings and tax bill. If you’re unsure which path is right for you, consider talking with your employer, plan provider, or a financial professional who can walk you through your specific situation.

There are advantages and disadvantages to all rollover options. You are encouraged to review your options to determine if staying in a retirement plan, rolling over to an IRA or another retirement plan, or another option is best for you.

Any tax-related discussion contained in this publication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any tax penalties or promoting, marketing, or recommending to any other party any transaction or matter addressed. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this publication. Income-tax rules on how withdrawals are handled may vary from state to state.